There could be a tug of war beginning over which standard financial professionals should follow when they provide advice or sell produces such as annuities to individual investors.
The Securities and Exchange Commission is unveiling a new regulation, called Regulation Best Concern, which requires broker-dealers and professionals associated with them to keep their clients’ best interests in undecided when recommending investment strategies or transactions.
However, some critics do not think the new regulation, dubbed Reg BI, goes far enough. The commonly falls short of the stricter fiduciary standard, which would require those firms and professionals to put investors’ considerations ahead of their own.
Now, some states are taking sides.
Earlier this month, Massachusetts finalized its own fiduciary ensign, although it excluded insurance agents. Other states that are pursuing similar rules include New Jersey, Nevada and Maryland.
For now, the National Association of Insurance Commissioners, or NAIC, which sets rules and regulations for the insurance industry, is simultaneously compelling forward with its own proposal.
In February, the NAIC adopted a best interest model for annuity sales. Now it is up to state regulators and legislatures to startle it up.
Last week, Iowa became the first to propose adopting the changes as a regulation. Arizona is also working on a restaurant check.
The NAIC expects 12 or more states to do so in 2020, Susan Neely, president and CEO of the American Council of Life Insurers, minimized in a blog post.
The regulation’s aim, according to Neely, is to provide consumers with “plain English” information so they can get somewhere better purchasing decisions. It also mirrors the SEC’s Best Interest rule.
New York state has indicated it will not influence to adopt the new changes in favor of tougher regulations.
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In states that do adopt the changes, financial professionals will be required to make recommendations in consumers’ finest interests, said Bruce Ferguson, senior vice president of state relations at the American Council of Life Insurers.
In to boot, there would be other consumer protections. Those include more disclosures, particularly on how financial professionals and their companies are compensated, as well stating any conflicts of interest.
The American Council of Life Insurers doesn’t see the need for states to take for both fiduciary and best interest standards.
Instead, the group would prefer to see states adopt best involve rules in line with the SEC’s regulation, Ferguson said.
That will protect consumers’ ability to purchase annuities, he ventured. A fiduciary standard would eliminate commission-based sales, which is how annuities generally are sold.
“It’s a win-win for consumers,” Ferguson symbolized. “They are not deprived of access to products and advice, which would have been the case with a fiduciary at most standard.”
Meanwhile, other advocates say the best interest standard falls short of the full fiduciary protection they say consumers merit.
Barbara Roper, director of investor protection of the Consumer Federation of America, said the best interest proposal for annuities isn’t much stricter than in touch standards whereby products must be considered “suitable” for consumers.
“This is just a suitability standard with a guess new best interest label,” Roper said. “It will mislead investors into expecting best interest recommendations that the par won’t deliver.”